US plans curbs on Chinese investments, citing security risks

Xi Jinping delivers a report to the 19th National Congress of the Communist Party of China (CPC) on behalf of the 18th Central Committee of the CPC at the Great Hall of the People in Beijing on October 28, 2017. (Ma Zhancheng/Xinhua/Zuma Press/TNS)

The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.

Under the plan, the White House would use one of the most significant legal measures available to declare China’s investment in U.S. companies involved in technologies such as new-energy vehicles, robotics and aerospace a threat to economic and national security, according to eight people familiar with the plans who spoke on the condition of anonymity.

Treasury Secretary Steven Mnuchin, in a report scheduled to be released Friday, will suggest administering that law through an interagency government panel called the Committee on Foreign Investments in the U.S., or CFIUS, the people said.

A Treasury spokesman did not reply to a request for comment.

One concept under review would be to create a two-tracked CFIUS process to review investments, with one specifically for China, two of the people said.

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Mnuchin has been working on the plans since as early as December, though he’s argued for taking a less aggressive approach, the people said. In the end, he’s been persuaded by other members of the Cabinet and the president to use blunt tools to address growing national security risks from Chinese investments, the people said.

Some administration officials are concerned that declaring a national economic emergency could hammer the stock market or hurt U.S. companies operating in China, they said.

The South China Morning Post reported over the weekend that China has no plan to target U.S. companies operating in the nation, but additional steps by the White House may change that assessment.

The national emergency law, called the International Emergency Economic Powers Act of 1977, will target prospective investments, meaning existing ones cannot be undone, according to four of the people. It’s unclear what would happen to deals that have been announced but not yet completed. Treasury officials are trying to settle on legal definition of “Chinese entities’’ that would be affected.

Trump’s top trade adviser, Peter Navarro, has been laying the groundwork to escalate what he’s so far called a “trade dispute.’’

Navarro last week issued a report titled “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.” The report is seen as part of the evidence the administration will use to justify the investment curbs on economic security grounds.

Much of China’s “behavior constitutes an economic aggression,’’ Navarro said last week. “It is critical both for the interests of the United States as well as for the integrity and proper functioning of the global economy that the Chinese cease these kinds of behaviors.’’

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Treasury’s move is part of the Trump administration’s actions taken under Section 301 to respond to China’s alleged theft of U.S. intellectual property and follows rounds of tit-for-tat tariff threats between the two largest economies.

The IEEPA statute allows the president to unilaterally impose the investment limits.